Playing the interest rate game

Playing the interest rate game

Despite concerns some European assets are overvalued, Jean Médecin, member of the investment committee at Carmignac Gestion, says interest rate convergence plus the stabilisation of Europe's economy could bring new opportunities in the ‘overvalued' credit market.

Low inflation and moderate, but positive growth, has paved the way for lower interest rates in Europe in recent months. Investors have taken advantage of this favourable development since the summer of 2012 by anchoring their European strategy around peripheral sovereign bonds. Initially, they bought Italian, Spanish, and Irish sovereign bonds with short maturities (less than three years), ie, those covered by the European Central Bank-designed Outright Monetary Transactions (OMT) programme, which is used as a backstop for eurozone periphery sovereign bond yields. They then progres...